Does Vietnam Manufacturing and Export Processing (Holdings) (HKG:422) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Vietnam Manufacturing and Export Processing (Holdings) Limited (HKG:422) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Vietnam Manufacturing and Export Processing (Holdings) Carry?

As you can see below, at the end of June 2025, Vietnam Manufacturing and Export Processing (Holdings) had US$43.3m of debt, up from US$33.9m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$58.6m in cash, so it actually has US$15.3m net cash.

How Strong Is Vietnam Manufacturing and Export Processing (Holdings)'s Balance Sheet?

We can see from the most recent balance sheet that Vietnam Manufacturing and Export Processing (Holdings) had liabilities of US$66.3m falling due within a year, and liabilities of US$1.99m due beyond that. On the other hand, it had cash of US$58.6m and US$20.8m worth of receivables due within a year. So it actually has US$11.1m more liquid assets than total liabilities.

It's good to see that Vietnam Manufacturing and Export Processing (Holdings) has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Vietnam Manufacturing and Export Processing (Holdings) has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Vietnam Manufacturing and Export Processing (Holdings)

It was also good to see that despite losing money on the EBIT line last year, Vietnam Manufacturing and Export Processing (Holdings) turned things around in the last 12 months, delivering and EBIT of US$107k. There's no doubt that we learn most about debt from the balance sheet. But it is Vietnam Manufacturing and Export Processing (Holdings)'s earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Vietnam Manufacturing and Export Processing (Holdings) may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last year, Vietnam Manufacturing and Export Processing (Holdings) burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Vietnam Manufacturing and Export Processing (Holdings) has net cash of US$15.3m, as well as more liquid assets than liabilities. So we don't have any problem with Vietnam Manufacturing and Export Processing (Holdings)'s use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Vietnam Manufacturing and Export Processing (Holdings) is showing 1 warning sign in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.